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Personal Financial Planning

Notes Estate planning refers to the process by which an individual or his/her family arranges the
transfer of assets to the legal heirs in the event of death or disability of the individual. It includes
the distribution of the real and personal property of an individual to his/her heirs.

12.2 Need of Estate Planning

As the social and family structure in India increasingly turns nuclear and the number of the
affluent rises thanks to the India growth story, the need for proactive ‘estate planning’ is very
important. Proper planning and a prudent approach are needed to safeguard your hard-earned
money and every individual deserves the right to bequeath his wealth to his kith and kin, or
anyone else the individual intends to.
Technically put, estate planning is a process of accumulating and disposing of an estate to
maximize the goals of the estate owner. Its core objective is also to distribute wealth in a pre-
determined manner to a certain beneficiary or beneficiaries to whomever the owner wishes.
One of the goals of an individual will be to protect the needs of the loved ones during lifetime
and after his death. This can be achieved by way of estate planning by distributing assets among
his beneficiaries. An estate plan aims to preserve the maximum amount of wealth possible for
beneficiaries and flexibility for the individual prior to his death.
In India, estate planning is generally perceived to be for the rich or wealthy, who have enough
cash, property or valuables to leave behind for their loved ones. The middle class can barely
make ends meet, they would tell you, leave alone the lower income groups. The fact, however,
is that estate planning is essential for all, regardless of one’s economic standing. Run an audit on
your assets and you would be surprised at its size. Most of us make the mistake of not recognizing
our assets, and in turn, our final estate. Estate includes cash, property, income from property,
shares, jewellery, insurance policies, provident fund, recurring and fixed deposits, among other
assets.

12.3 Objectives of Estate Planning

1. Asset transfer to beneficiaries: Every individual wishes that his/her accumulated wealth
should reach the hands of the beneficiary of his/her choice. Beneficiary can be his/her
children, parents, friends or any other person.
2. Tax-effective transfer: To ensure least tax deduction on such transfer of wealth.

3. Planning incase of disabilities: It ensures smooth functioning of asset management within
the family incase an individual gets disabled.
4. Time of distribution can be pre-decided: Individuals having minor children may wish to
transfer the assets only after the children attain a certain age, to avoid misuse that may
happen due to lack of maturity and discretion.
5. Business succession: Organized succession or winding up can be defined incase of an
individual handling business.
6. Selection of trustee or guardian or the executor: An individual needs to be appointed to
carry out the functions like:
(i) Distribution of assets to the beneficiaries as per the individual’s wish
(ii) To pay testamentary and funeral expenses
(iii) Applying for a probate

(iv) Paying all the expenses and outstanding debts

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